ETF’s: A Fly or a Bull?

The goal of trading models is to be a fly on the bull’s back, but not be the bull. ETF’s have long sold themselves as that fly – now giving investors a way to follow along with almost anything you can think of (with ETF’s for (SPY) SPDR S&P 500, (GLD) Gold, and (IYR) iShares Real Estate. ) But what happens when the fly starts to move the bull, instead of the other way around… Enter pricing problems, enter volume during volatility.

iShares Blog seemed to run away with themselves over the increased ETF trading…

“This is a trend we’ve seen before. When headline-making news triggers a sudden shift in investor sentiment and market volatility jumps, it has been followed by elevated ETF trading volumes in absolute dollar terms and also in proportion to total US equity market trading volumes. In June, ETFs accounted for 31% of the dollar value of all trading volume in US equity markets, up from 20-25% in recent months.”

However, these numbers may be a bit deceiving. For instance, while Bond ETF’s now represent 17% of all ETF’s, a 12% increase in 7 years, Yahoo Finance points they still only account for .03% of the total bond market (chart below).

So while ETF trading volume is surely on the increase, and there have been some issues in real time pricing – the fly leading the bull comparison may not be entirely valid.

A related but different concern was rampant not so long ago – in terms of commodity ETF’s and their affect on the food supply. The logic was that billions of dollars going into a commodity tracking investment might cause the commodity itself to move – going from tracking to causing – and that has mostly been debunked (although a Congressman did just ask CME’s Terry Duffy about it last week.

The one people haven’t figured out (or started complaining about) yet, is the REITs, REIT ETFs, and all the real estate products. Isn’t demand for those products pumping money into commercial real estate and driving up rent costs… After food, that seems like something the “speculators are evil” camp would be concerned about. And seeing as how it doesn’t involve futures markets, we would be happy to shift the target over to the real estate folks.

Search

Social Media

DISCLAIMER

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors. You should not rely on any of the information as a substitute for the exercise of your own skill and judgment in making such a decision on the appropriateness of such investments.

The entries on this blog are intended to further subscribers understanding, education, and - at times - enjoyment of the world of alternative investments through managed futures, trading systems, and managed forex. Unless distinctly noted otherwise, the data and graphs included herein are intended to be mere examples and exhibits of the topic discussed, are for educational and illustrative purposes only, and do not represent trading in actual accounts. Opinions expressed are that of the author.

The mention of specific asset class performance (i.e. +3.2%, -4.6%) is based on the noted source index (i.e. Newedge CTA Index, S&P 500 Index, etc.), and investors should take care to understand that any index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship and self reporting biases, and instant history.

The performance data for various Commodity Trading Advisor ("CTA") and Commodity Pools are compiled from various sources, including Barclay Hedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

The mention of general asset class performance (i.e. managed futures did well, stocks were down, bonds were up) is based on RCM’s direct experience in those asset classes, estimates of performance of dozens of CTAs followed by RCM, and averaging of various indices designed to track said asset classes.

The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.

The owner of this blog, RCM Alternatives, may receive various forms of compensation from certain investment managers highlighted and/or mentioned within the blog, including but not limited to retaining: a portion of trade commissions, a portion of the fees charged to investors by the investment managers, a portion of the fees for operating a fund for the investment managers via affiliate Attain Portfolio Advisors, or via direct payment for marketing services.

Managed Futures Disclaimer:

Past Performance is Not Necessarily Indicative of Future Results. The regulations of the CFTC require that prospective clients of a managed futures program (CTA) receive a disclosure document when they are solicited to enter into an agreement whereby the CTA will direct or guide the client’s commodity interest trading and that certain risk factors be highlighted. The disclosure document contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA.

Archives

RCM Alternatives

Disclaimer

Forex trading, commodity trading, managed futures, and other alternative investments are complex and carry a risk of substantial losses. As such, they are not suitable for all investors.
The mention of market based performance (i.e. Corn was up 5% today) reflects all available information as of the time and date of the publication.